Heading into 2025, it’s tempting to draw parallels with 2017.
Yet when Donald Trump first moved into the White House, the
global economy was fundamentally different than it is today.
Eight years ago, the US government deficit was
much lower, global economic growth was more
balanced, and interest rates remained near all
time lows. Inflation, geopolitical conflict and a
reversal of globalization have molded a starkly
different picture for the incoming Republican
administration.
‘America First’ campaign pledges could have
ramifications worldwide. The conventional
wisdom is that the Republican ‘trifecta’ in the US
government, coupled with lower policy rates will
lead to faster US economic growth, a stronger
dollar, and some upside risks to inflation in 2025.
Given the high degree of uncertainty in the US
and around the world, we are more attuned than
ever to potential tail risks – tariffs that threaten to
disrupt global trade, new sources of geopolitical
tension and a macroeconomic backdrop that
refuses to behave as history says it should. These
contextual shifts pose opportunities and risks for
investors across every asset class.
Trump 2.0: tax cuts and tariffs
The world’s largest economy, which is
likely to finish 2024 with annualised
growth at just under 3%, is in robust
shape, supported by the strength of the
American consumer.
Proposed extensions to corporate and individual tax rates and a drive towards deregulation should support growth in the near-term. However, lower taxes, increased tariffs and changes in immigration policy could also drive new inflationary pressures within the US economy.
While higher inflation is not guaranteed, it does raise important questions about the pathway towards sustainable economic growth. The cost of living was a key issue in the US election and limiting consumer price inflation will remain an important political objective. We do not see lower energy prices – on the back of higher oil and gas production in the US and elsewhere – being fully compensatory. On the campaign trail, Trump proposed blanket tariffs of 10% to 20% on all US imports and of 60% on US imports from China. In late November, the president-elect upped the stakes by threatening 25% tariffs on imports from Canada and Mexico.